FILE PHOTO: A woman walks past a branch of Mitsubishi UFJ Financial Group’s bank of Tokyo-Mitsubishi UFJ (MUFG) in Tokyo, Japan, May 16, 2016. REUTERS/Thomas Peter/File Photo
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THOMAS PETER
Shriram Finance on Friday said it is entering into definitive agreements with Japan’s largest lender MUFG Bank for an investment of ₹39,618 crore ($4.4 billion) to pick 20 per cent stake in the NBFC via preferential issue of shares. This is the largest FDI in a financial services company in India. Shriram Finance’s overall assets stood at over ₹2.81 lakh crore as on September end.
The non-bank lender said MUFG Bank will be issued over 471 million shares at ₹840.93 per share, which translates into a 20 per cent stake. MUFG will have the right to appoint two nominee directors on the board of Shriram Finance. This deal can help Shriram Finance gain a rating upgrade, and paves way for MUFG to gradually pick a controlling stake in the transport vehicle financier, experts say.
”Shriram has strong presence in high growth CV and MSME market with total AUM of over ₹2.5 lakh crore. This provides MUFG access to segment growing 15-18 per cent without greenfield execution risk. Twenty per cent stake provides meaningful strategic stake and a clear pathway to gradual control, subject to RBI approvals. Further, MUFG has agreed to pay $200 million in non-compete fee to promoter entity in a clear signal of long-term and strategic intent of the deal. Embedded call option for eventual takeover once regulatory and strategic comfort is achieved,” said Pratik Shah, partner and national leader- financial services, EY India.
Vivek Iyer, Partner and national leader of financial services at Grant Thornton Bharat, says one cannot rule out the possibility that Shriram Finance will hive off all the non-lending businesses, as the strategy underpinning this deal is to focus on the core strengths and maximise value creation, which is primarily lending.
Another analyst said the deal could lead to re-rating and fall in cost of funds for Shriram Finance. “Similar rated company like Cholamandalam’s cost of funds was 100-120 basis points lower than Shriram. However, the gap has now reduced to 20-30 for incremental borrowing done over the last 3-4 months in anticipation of this deal,” they said. The primary reason for Shriram Finance onboarding a foreign investor was to gain a rating upgrade, which has remained stagnant since the last three years post-merger of group companies into Shriram Finance, a source at Shriram Finance said seeking anonymity.
Opportunities ahead
According to Shah, this deal gives MUFG the ability to plug Shriram into its global balance sheet and treasury capabilities, without tapping capital market beside strengthening structured finance, co-lending and risk management.
“The deal provides Shriram Finance with sustained access to low-cost, long-tenor funding, including potential USD and JPY funding lines, supporting a structural improvement in cost of funds as industry margins normalise. Strategic ownership is also likely to strengthen Shriram’s credit profile, improving rating outlook enhancing confidence among domestic lenders.,” he said, adding that the deal creates a credible long-term succession and monetisation pathway, replacing short-term financial capital with a stable global strategic partner.
Iyer, meanwhile, says that MUFG has a presence in India through its banking operations with exposure primarily in the large corporate and institutional segment.
“India as an investment destination offers a huge amount of opportunity in the retail and MSME space which MUFG global doesn’t have exposure to. The acquisition in Shriram Finance enables MUFG global to participate in the growth that this space offers. The acquisition offers growth capital to Shriram Finance to scale their business through broader product offerings and thereby deeper client penetration,” Iyer said.
Will Shriram become a bank?
Shriram Finance is among the few entities in upper layer NBFC category which does not have a corporate house as a promoter. The RBI has traditionally denied granting banking licence to corporate house. With MUFG deal, investors are eyeing whether Shriram Finance would opt to apply for a banking licence.
“Happy to see big ticket foreign investment in Shriram Finance by Mitsubishi UFJ, a reputed global bank and financial institution. Will Shriram continue as NBFC which has huge potential without regulatory constraints of a banking company, or apply to become a bank in due course?,” Kotak Mahindra Bank founder Uday Kotak posted on X.
Published on December 19, 2025
